ūü߆ Visa's Flexible Credential is a Gamechanger.

A decade ago, card issuers talked about being "top of wallet." Now, it's about being the wallet.

Welcome to Fintech Brainfood, the weekly deep dive into Fintech news, events, and analysis.

Hey¬†Fintech¬†Nerds ūüĎč

There are weeks where decades happen. This was one in Fintech.

BNPL is now firmly a credit product in the US. Kudos launched a ‚Äúrewards optimizer‚ÄĚ at checkout. Not to be outdone, so did Google. (ūüĎÄ)

All of this builds on last week‚Äôs epic announcements from Visa. (ūüď£)

The future of payments is optimized at checkout for any rail or reward.

PS. This week the first episode of the Fintech Brainfood podcast launched (yay!). I interviewed Eric Glyman, CEO of Ramp and we got into how they build product, and the metrics that matter to him. Find it here on Spotify or here on Apple Podcasts 

Here's this week's Brainfood in summary

ūüď£¬†Rant: Visa‚Äôs Flexible Credential is a Gamechanger.

ūüíł 4 Fintech Companies:

  1. Kudos - The wallet that optimizes rewards

  2. Panax - AI for Cashflow and Treasury for Mid-sized enterprise

  3. SwypeX - Ramp for Egypt

  4. Azimuth - Compliance Effectiveness Testing for Lenders

ūüĎÄ Things to Know:

Weekly Rant ūüď£

Visa's Flexible Credential is a Gamechanger

For payments to not suck, they must work on any payments rail in any market and optimize for price and rewards. 

Consumers would have zero friction and global payments. Merchants would trade off low-cost or higher conversion to suit their needs.

All of that would happen automatically.

This seemingly simple ambition is incredibly hard in practice because we have evolved payment systems over decades that

  • Suit different commercial incentives (banks, networks, merchants)

  • Are built on legacy technologies to solve a problem at the time (like ACH displaces cheques, credit cards displace merchant and Bank owned card brands)

  • Operate nationally or within closed (or closely controlled) networks.

Payments are fundamentally not interoperable, global, and rarely instant.

Cards don't work with ACH, and they don't really work with cross-border. 

It's all a giant hodge-podge of companies trying to make the best of a mess.

But what if any card or wallet could help you navigate any payment type or sign any contract?

What if the route your payment was taken down was optimized right at the start?

That's exactly what Visa just announced.

Enter: Visa Flexible Credential

The Visa Flexible Credential allows a user to switch between debit and credit on a per-transaction basis. Put another way, if you're a card issuer (Bank, Fintech, or in embedded finance), you can now:

  1. Add lending to that card.

  2. Allow the user to route the payment to another card to optimize rewards.

In a sense, it allows one card to rule them all.

Unpacking the card credential

This excellent tweet from Terry explores (paraphrasing below)

  1. A "tap-to-pay" or swipe is a legal agreement to make a payment from an account you hold to a merchant via a payment method (e.g., credit, debit, or BNPL).

  2. New: A tap now also points to any other payment method. Your "tap" could point to any account or wallet. A payment for Gas could automatically use your fuel card, airlines use your Airmiles card, Grocery, Amazon Prime for 5% cashback.

  3. Next: This empowers wallets to "auto select for you." Imagine if CashApp, Venmo, or your Neobank would auto-select the right credit, debit, or pay-by-bank rail based on the rewards you'd get. (Similar to how Kudos from this week's four Fintech companies works.)

That's cool, but what if a card credential could do more?

The best payment rail for the transaction empowers wallets and merchants.

Visa also announced this week that it's launching pay-by-bank in the US via its open banking acquisition, Tink. Pay-by-bank could be a meaningful competitor to cards. It offers merchants lower costs and potentially less friction for consumers, especially in use cases like bill pay or account funding.

Think of it like Open Banking Initiated Real-Time Payments. As a consumer, you would see an option at checkout, online or mobile, to connect (via Plaid or competitors) and share your ACH details to begin a transaction.

Fintech Brainfood

If you've tried to pay with Airbnb, X or Uber lately you might have seen a new SMS service from Stripe appear called Stripe Link.

As soon as you hit checkout, Stripe asks you to use Link and once signed up, you authenticate with an SMS, and you're done. This has two benefits.

  1. It's often faster than inputting card information (even when stored)

  2. It offers a second factor of security (through the mobile device), like a low friction 3D secure.

So far, so good. 

The biggest barrier to the adoption of Pay by Bank will be acceptance at the physical point of sale. If only there were some way to make cards compatible with Pay by Bank. 

Combining flexible credentials with Pay by Bank at the point of sale makes a new payment method possible. 

In the future, merchants will be able to use any card to initiate a payment via any rail. They'll trade off the price of the rail (e.g., Pay by Bank is cheaper vs. Credit or BNPL) for the conversion of the user (e.g., BNPL may convert higher).

Consumer wallets and branded checkouts will compete for which rail and payment method appears first.

Flexible Credential and Tap to Anything also enable default global.

The problem with card rails is they're as big as the network. Visa's network is its strength, but it is also limited. Credit cards aren't fully compatible with Pix, UPI, Grab Pay, or Alipay (unless it's by exception). That means the "it works everywhere" proposition breaks down if you travel across India or APAC. 

A flexible credential could steer a payment to those international wallet and RTP payment methods.

If the flexible credential, sitting in a wallet or app, could steer to other payment types or use a bridge like stablecoins, things get a lot more interesting.

(Read more in the ūü߆¬†US Dollar rail for¬†non US¬†citizens)¬†

Tap to anything opens the apeture.

If a flexible credential is an agreement to pay a merchant and payment rail selector, could it also be a legal agreement to do and sign other things? 

Change that equation to.

An agreement to 

  • Rent a car +¬†Pay¬†according to the contract?

  • Book a hotel + cover incidentals automatically?¬†

  • Sign a subscription agreement?

  • Sign a loan agreement and set up a payment schedule?

  • Pay for entry to a nightclub?

  • Act as a ticket to a sports stadium?

  • Book a flight and select the best card for the job?

Now, add all of the loyalty and payment rail benefits. 

Passkey support makes cards a password.

Do you hate managing passwords? Me too. 

Big tech companies like Apple, Meta, and Google, as well as password managers like LastPass and OnePassword, aim to solve that with passkey technology. 

TL;DR - it's a standard way to use your device to authenticate (e.g., with Biometrics) for login and authentication.

Now imagine if any payment credential (what used to be 16 digits and is now a token) could operate as a passkey. Not only could you log in with your card to third-party services, but you could also link payments to them instantly.

Imagine hitting checkout, and your phone notifies you. You use a Passkey to authenticate that payment (or any other kind of contract or agreement).

Data tokens are the final piece of a wallet puzzle.

What makes BNPL special is its ability to use checkout and buying behavior data to generate offers and discounts for app users. They blended Fintech with Ad Tech to attract more shoppers to merchants.

Making this a network-level capability means any wallet could operate like a BNPL provider and surface future shopping offers, and give bigger loyalty and rewards.

When you consider Chase just launched an advertising business, this doesn't seem so far off.

Do the Visa announcements enable Banks to become wallets?

The incredible Jareau Wade described the flexible credential as enabling banks to compete with Apple Pay.

One of the benefits Apple Pay has held over other types of consumer wallets is the ability to authorize/initiate transactions via fingerprint or facial scans using a consumer's phone, leading to lower fraud and dispute rates and as a result higher authorization rates.

Batch Processing

Put the pieces together, and there's a solid argument for it. 

Payments: Apple Pay works by having users use their Biometrics whenever they click to pay. Passkeys, flexible credentials, and the click-to-pay feature create the same experience as Apple Pay.

It also brings other wallet-like capabilities that have become a default for companies like PayPal and Apple-like:

  • Card activation: Tap your card to your device to activate it when receiving it.

  • Confirm a transaction: Click¬†pay¬†online, and confirm quickly with device biometrics.

  • Ticketing: The "tap-to-anything"¬†means airlines or sports stadiums could use the wallet as a place to store and issue tickets

Visa suggests this would be available via a bank's existing mobile app and turns what is largely a servicing screen into a true wallet.

Or do the announcements mean Neobank Wallets displace banks?

The value of this app is that it aggregates multiple cards together. Is Citi really going to let you put your Chase Sapphire card in the same wallet and send transactions to it?

Fintech wallets, however, have a different model. They're not trying to win deposits to fund lending activity. Their aim is to be the most engaging and useful wallet and to win permission to cross-sell to them.

A decade ago, card issuers talked about being "top of wallet." Now, it's about being the wallet. CashApp, Venmo, Chime, and others are now much better placed to compete with Apple Pay.

The bear case.

I'd split this in two

  1. Execution Risk

  2. Competitive Risk

1. Execution risk. Announcing products is one thing; delivering them is another. Visa has a long history of announcing wallets and solutions that amount to little more than a press release.

This, in particular, was disheartening.

Visa's marketing materials imply that Visa Payment Passkey Service will only be available via Click to Pay, Visa's proprietary online checkout experience, which is primarily deployed outside the US.

Batch Processing

That's not the move of a network of networks. The Passkey should work with every branded checkout and every app. There are probably some good technical limitations here, but I'd still want this to be as open as possible.

2. Competitive risk. Visa is far from the only card network or payment rail. Mastercard will have an alternative; Capital One and Discover will be a part of the conversation, and merchants must be convinced.

Mastercard owns Finicity, which has a much larger open finance market share than Tink. They also own Faster Payments in the UK (so they have experience operating RTP) and have always done well internationally.

Visa's frenemies in this strategy are wallet providers and branded checkouts like Apple Pay, Shop, PayPal, and CashApp. Those companies have the most to gain from identity, payments, and signing, which are wallet-centric rather than network-centric.

Venmo could steer a consumer to use pay-by-bank to fund a wallet instantly and then make an "on us" transaction to payout the merchant. That would be a wildly more profitable transaction as a closed-loop payment.

The commoditization of the issuer.

Of course, the big banks are a massive part of Visa's business, so it makes sense that they'd focus on banks as the winners in their marketing, but I have a different take.

The card and the bank are being commoditized. The losers will be the card issuers (banks) that don't aggressively adopt a wallet strategy. In this light, the bank's Paze initiative makes a ton of sense.

The short-term winners will be the Fintech wallets that can execute and use the new capabilities. If your wallet can help you optimize rewards, select a payment rail based on the best cost/benefit for you or the merchant, store your identity, and sign contracts, it will become 1000x more useful. 

Tokens, credentials, passkeys, and data all exist at the network level, and operating on multiple rails is the future we want.

There's a long road between announcing something and using it at scale. 

But.

Kudos to Visa for the most compelling set of product announcements in Fintech I've seen in a long time.

ST.

4 Fintech Companies ūüíł

1. Kudos - The wallet that optimizes rewards

Kudos is an alternative take on Honey (Acq'd by PayPal). It is a Chrome extension that works with 2m merchants and 3,000 credit cards and auto-fills the best credit card at checkout to optimize rewards. It also features "boost merchants" where Kudos matches any credit card rewards you would have earned from the card alone. Kudos says users benefit an average of $750 per year.

ūü߆¬†Instead of optimizing for voucher codes at checkout, Kudos optimizes rewards and boosts them. The "boosts"¬†feature is more merchant-friendly than Honey, which helps users get discounts. By partnering with honey merchants attract¬†more¬†potential customers. The demographic that optimizes rewards tends to skew higher income, an attractive target for some merchants in particular. This wallet could be a wedge to much more in time.¬†Imagine if they added the new Visa flexible credential capability to autosteer user cards at the Point of Sale, too.

2. Panax - AI for Cashflow and Treasury for Mid-sized enterprise

Panax helps mid-sized companies in real estate, logistics, and manufacturing make decisions about cash flow and forecast it accurately. It manages bank reconciliation, creates cash reports and forecasts, and alerts users when an account is above (or below) an optimum threshold to sweep cash.

ūü߆¬†The CFO stack for growth companies is coming to everyone else. Fun fact, in¬†2019¬†I worked on a bank project to build¬†exactly¬†this¬†proposition for¬†exactly this segment. The need has always been there; what has changed is two things. 1) Mid-sized enterprise's willingness to adopt a digital default since the pandemic. 2) The number of successful companies in the CFO stack serving the tech and growth company segments.

3. SwypeX - Ramp for Egypt

The SwypeX product provides a single platform for invoicing, cash management, banking, and corporate cards for digital Egyptian businesses. Accounts can be opened in 3 minutes and include features like card controls (especially important in a market where up to 5% of spend can be fraudulent). 

ūü߆¬†Egypt is a market that looked like Brazil 15 years ago.¬†It has a large population, an innovative central bank introducing real-time payments, and¬†the vast majority of¬†businesses using cash. It's also a market with a modern, tech-savvy population surrounded by a boom in Fintech and Tech across the Middle Middle East. While it has economic and geopolitical challenges, it has willing neighbors like the UAE who've taken giant leaps on the global stage driven by regulation.

4. Azimuth - Compliance Effectiveness Testing for Lenders

Azimuth tests for regulatory compliance for mortgage lenders with Federal and State laws as well as the CARES Act. Where traditional (manual) testing is done on less than 1% of the user population, the tool tests for compliance against 100% of users. For example, has the lender helped mitigate losses, and has it complied with fair lending?

ūü߆¬†It's baffling that, in 2024, batch testing is still the default for most lenders (and institutions).¬†Taking a CSV export of¬†confusing¬†system of record data and having outsourced humans look it over for errors on a tiny sample of customers is¬†wildly inadequate. This is one area where FIs could learn from Fintech companies, which test 100% of the user population by default across every type of risk. The future of compliance is the best of compliance knowledge + the best data science.

Things to know ūüĎÄ

Love this. When a user hits checkout and is prompted to enter a card number, the browser ‚Äúautofill‚ÄĚ list will display the available benefits from stored cards. The feature is live today with a some AMEX and Capital One cards.

Google checkout with rewards

ūü߆¬†The future of checkout is more rewarding. Whether it's Kudos, Visa's flexible credentials, or now Google, it's like everyone is fighting to show you the best offer to convert you at checkout.

ūü߆¬†Do issuers want you to maximize rewards or just use their card? The business case requires most users not to milk the rewards perfectly. Most shouldn't. But it seems inevitable that users will be empowered to do just that.

The Consumer Financial Protection Bureau has published an interpretive rule that stipulates BNPL providers are credit cards. The aim is to ensure consumers can dispute charges, claim refunds, and have clear disclosures made available to them.

ūü߆¬†BNPL is not a credit card; it‚Äôs often better. My biggest bugbear with this move is it‚Äôs equivocating credit cards and BNPL as products. They‚Äôre not the same. For low-income consumers, revolving debt is often more risky.

ūü߆¬†But BNPL did need regulatory clarity. It‚Äôs almost impossible to pass new laws in the US, so aligning BNPL to TILA (Truth in Lending) is probably the least bad outcome.

ūü߆¬†The key is for BNPL to avoid the hidden fees game the credit cards play. The CFPB has taken action on ‚Äújunk fees.‚ÄĚ But the reality is that fees and high-cost revolving credit are traps that few consumers understand. The advantage of BNPL is a sense of control and a feeling of fixed terms and prices.

The SEC has approved the sale of a Spot Ethereum ETF after requests by  Nasdaq, NYSE, and CBOE. Trading will not start immediately because individual ETF issuers still need approval. The news comes as a surprise because The SEC, under its Chair, Gary Gensler, has been actively pursuing enforcement actions (Wells notices) against companies whose digital assets it deems to be security.

ūü߆¬†The view on Crypto in Washington has flipped 180 degrees in an election year.¬†I believe it's no coincidence that the¬†House of Representatives also passed a Crypto bill¬†around the time of this approval.¬†Whether it's a Democrat or Republican in the White House, I suspect 2025's SEC will be more thoughtful, and we'll finally get Crypto legislation in the US.

ūü߆¬†Regulation by enforcement has failed.¬†Enforcement regulation relied on the courts, which was a high-risk strategy. Recent court losses to Ripple have damaged the SEC's ability to oversee the sector.¬†

ūü߆¬†Ethereum as a technology is well-regarded by financial institutions.¬†As time has passed, the largest banks and asset managers have realized the power of Ethereum's smart contracts, Stablecoins, and automation. It has a very positive reputation. Making it a pariah is unhelpful to the big finance lobby.

ūü߆¬†Post FTX Crypto was poison.¬†The Elizabeth Warren cohort had led the Democrats in a post-FTX world, but the facts have changed. The Crypto lobby is significant, and the posture has to change. The Republicans are naturally more pro-crypto.¬†

ūü߆¬†It appears the SEC still repeats, "most cryptocurrencies are securities."¬†This message, however, will fall on deaf ears. The Crypto companies are well-funded enough to keep this in the courts longer than Chair Gensler can stay in his chair.

Good Reads ūüďö

It's no secret that the largest Fintech companies often rely on the smallest banks for access to the banking system. What has started to change is the scale of regulatory action and fines. Partnerships can no longer be a way to shortcut growth. The fixed costs of running programs has now dramatically increased, but the reward hasn't gone away.

ūü߆¬†BaaS should never have been easy.¬†It became that way because the US has¬†a large of¬†banks seeking growth, a unique regulatory arbitrage with the Durbin amendment, and the mobile and cloud revolution, making Fintech the¬†biggest¬†thing in Tech for a brief moment.

ūü߆¬†For community banks, the question is one of survival.¬†Banks continue to die out, and no new charters are granted. You have to question if regulators want smaller FI's to exist or if they view them as too risky to do anything other than serve a local community and then eventually be acquired.

Tweets of the week ūüēä

That's all, folks. ūüĎč

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(1) All content and views expressed here are the authors' personal opinions and do not reflect the views of any of their employers or employees. 

(2) All companies or assets mentioned by the author in which the author has a personal and/or financial interest are denoted with a *. None of the above constitutes investment advice, and you should seek independent advice before making any investment decisions.

(3) Any companies mentioned are top of mind and used for illustrative purposes only.

(4) A team of researchers has not rigorously fact-checked this. Please don't take it as gospel‚ÄĒstrong opinions weakly held¬†

(5) Citations may be missing, and I've done my best to cite, but I will always aim to update and correct the live version where possible. If I cited you and got the referencing wrong, please reach out